Generally speaking, we are all aware of the importance of establishing multiple sources of income. There could be nothing better than having both active and passive streams of income flowing into our bank accounts. However, post-retirement we will inadvertently end up depending more on our passive income sources. In this article, we shall explore what a retirement portfolio should look like.

Insurance

Life insurance is important as it helps you secure your family’s financial needs even when you are not around. A term plan should suffice for this purpose. There is no need to get into exotic ULIPS due to their associated illiquidity and cost structure. It is a great way to prevent the risk of loss but not the best way to save for retirement.

Debt

EPF continues to be a comparatively favourable investment vehicle due to its EEE status, where the entire amount including principal and interest is exempt from taxation. The new budget permits tax deductions of up to Rs 2.5 lakhs p.a. for annual contributions towards the EPF.

Even the NPS gives unmatched tax benefits of up to 60% of the amount while the remaining 40% has to be converted into an annuity. There are options to match varying risk appetites, from debt only to aggressive funds with a 70:30, equity-debt structure.

You can also opt for Debt mutual funds or invest directly in G-sec funds. The VPF too offers great convenience and safety. Despite the tax implications, the government guarantee makes it a good option for high-income earners with very low-risk appetites.

Equity

Mutual funds continue to be a favourable investment theme. There are various themes as per differing risk profiles. One should be careful while investing in equity, especially when you are nearing retirement, to hedge against the risk of market volatility. You could avail of Portfolio Management Services for ticket sizes of Rs. 50 lakhs and above.

Gold & Real Estate

Gold will always be linked to inflation, so it is a good way to beat the effect of inflation but there is no economic activity linked to gold. Real Estate has the potential to make more than the inflation and provide good returns but it doesn’t make sense to include it in your retirement planning. It’s limited in the options it provides you, for e.g. Even to get Rs. 1 lakh you have to sell the entire property.

While drawing up your retirement plans, it’s a good idea to plan till the age of 90 years. By using a mix of debt & equity you can continue to earn returns even after retirement. Real assets too can be depended on to enjoy returns over inflation.

Planning your finances for retirement cannot be a one-time activity, it is an on-going process that must be done with due-diligence and prudence to achieve your set goals and be financially independent.